Research In Motion needs subscribers, cash

BlackBerry maker’s results under scope ahead of key BB10 launch

By

DanGallagher

SAN FRANCISCO (MarketWatch) — The next quarterly report from Research In Motion Ltd. due Thursday afternoon will show investors whether the company has been able to hold on to its user base and cash, ahead of the launch of its new operating platform.

Reuters

RIM CEO Thorsten Heins gives a preview of the BlackBerry 10 operating system in San Jose, Calif., which the company is banking on to revive its smartphone business.

That launch, currently expected in late January or early February, is crucial for RIM, as the company has seen its pioneering BlackBerry franchise hobbled by the competing iPhone and Android platforms. As a result, RIM has put considerable resources into its new BlackBerry 10 operating system, which many believe is a last-ditch effort to revive the Waterloo, Ontario-based company’s smartphone business.

The results for RIM’s
US:RIMMCA:RIM
third fiscal quarter, slated for Thursday after the closing bell, will not include any sales of BlackBerry 10 products. The company has scheduled an event for Jan. 30 in New York City to unveil the new platform and its first devices, and analysts believe the market launch will come a few weeks later.

Instead, investors will be watching to see if RIM can maintain its subscriber base heading into the launch. The company surprised investors in its last quarterly report in September by reporting a gain of 2 million subscribers from the previous quarter, despite no significant new device launches.

Those results helped lift sentiment around RIM’s stock, which has nearly doubled in value since early fall to its current price of $13.65 on Tuesday.

“We believe investors are likely to look past the [quarterly] report and remain focused on the upcoming launch of BlackBerry 10 products,” wrote James Faucette of Pacific Crest in a note Tuesday. He added that “the one exception would be if the company burned meaningful cash in the November quarter, which we do not anticipate.”

Analysts are currently expecting RIM to post a loss of 36 cents per share for the quarter, on revenue of $2.65 billion. The company reported adjusted earnings of $1.27 per share on revenue of $5.2 billion in the same period last year.

Subscriber levels will be closely watched. RIM reported about 80 million users at the end of the last quarter. Analysts on average are expecting about 400,000 to 500,000 new subscribers to be added for the period — though some are predicting a decline. Subscribers are important to RIM’s business model, as they drive the stream of high-margin, recurring revenues paid by carriers to use the company’s backbone messaging network.

But analysts are also concerned about RIM’s cash level, which could be depleted by the development, rollout and marketing for BlackBerry 10.

Kris Thompson of Toronto-based National Bank downgraded RIM to a sector-perform rating on Tuesday. The analyst cited the recent run-up on the stock price and a growing short interest on the shares as setting up the potential for a big selloff following the results, if the company’s cash-burn rate is higher than expected.

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“Cash is king heading into the BB10 product launch (inventory build, promo spend, etc.) and a sub base for future upgrades is the next most important factor,” Thompson wrote to clients.

RIM reported cash, short-term and long-term equivalents of $2.3 billion at the end of the prior quarter.

Wall Street sentiment is still highly negative on RIM. Fifteen brokers have sell ratings on the stock, while just seven have buy calls, according to Thomson Reuters. About 23 analysts rate the shares as neutral, and the shares are well above the Street’s current median price target of $8.

Most analysts are skeptical that BlackBerry 10 can turn the company around in the long term. Mike Walkley of Canaccord Genuity downgraded the shares to a sell rating earlier this month, writing that “we do not believe BB10 will return RIM to sustained profitability.”

Some who are neutral on the shares are primarily interested in the company’s strategic alternatives. RIM has disclosed that it has hired advisers and is considering its options, though no buyout deal or major partnership has yet been reported.

“While the stock remains cheap, only the potential for a breakup or an outright sale keeps us at a neutral rating,” Kulbinder Garcha of Credit Suisse told clients Tuesday.

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